– Less compression than it looks – E24

– Less compression than it looks – E24

Arctic Securities believes that the fear that Heimstaden Bostad will not be able to meet its payment obligations is not justified. The liquidity available to the company is less than its true value, according to the brokerage house.

Heimstaden is controlled by Ivar Tollefsen, which owns nearly 40 per cent of the housing giant Heimstaden Bostad. Here in front of Kragerø, where he has a summer house as well as business across Fredensborg Fritid.
published: published:

“Not as stressful as it might seem,” or “not as stressful as it might seem,” brokerage house Arctic Securities wrote in a recent update to Heimstaden Bostad’s website, dated Sunday.

The European housing giant dominated by Ivar Tollefsen provided second-quarter figures on Friday showing that rental income is pouring in and almost all homes are rented.

But with more than SEK 212 billion in debt, inflation, rising interest rates, and more depreciation expected, the company BBB credit ratingBBB credit ratingThe credit rating agencies’ evaluation of the company’s strength and ability to pay gives an indication of the risks, which are considered in the financial market as a driver of prices with regard to financing and refinancing. under pressure.

Studying alternatives

The main message on Friday was that Heimstaden Bostad will defend the credit rating whatever is needed. The company has therefore changed its financial objectives in line with S&P credit agency’s minimum requirements (see factbox).

At the same time, management announced the sale of homes and the possibility of a further capital increase.

– We are studying different options with the board of directors, said Christian Vladland, investment manager at Heimstaden Bostad, during the conference call with analysts after the presentation.

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– Exaggerate

On Friday Heimstaden Bostad reported a decline in home values ​​of NOK 7.4 billion, or 2.1 percent. At the end of June, the portfolio amounted to SEK 340 billion.

The prospect of a continued decline in real estate values, rising interest rates and increasing inflation pushed Heimstaden Bostad’s listed bond loans to the bottom of the market.

Arctic analyst Michael Johansson believes the fear that both Heimstaden Bostad and major shareholder Heimstaden will be unable to meet their repayment obligations is exaggerated.

The ownership structure of the Heimstaden Group as of Q4/22, including Ivar Tollefsen as well as the private family business Fredensborg.
Credit Analyst Michael Johansson, Arctic Securities.

– As of today, the market is pricing in a fairly high probability of default for both, Johansson writes and continues;

– Unlike some other positions within the Nordic real estate sector, liquidity appears to be sufficient in the short picture, and we believe the market is exaggerating the potential decline in value that will be reported in the future in light of negative property audits, the analyst writes.

Maybe 25 billion

Arctic Securities previously estimated Heimstaden Bostad to have a capital requirement of SEK 20.8 billion, based on values ​​announced in the previous quarter. The appreciation increases exponentially as the value of the housing stock drops by 10-20 percent. Estimates have been made with the aim of bringing the Heimstaden Bostad network Debt ratio to the maximumDebt ratio to the maximumLoan-to-Value Ratio: The debt in relation to the reported value of the property’s inventory. less than 50 percent.

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The analyst believes that estimating real capital requirements is complex and will depend on the amount of capital grants and the amount of homes that will be sold, and at what prices, he points out.

– But, if the equity issue is resolved (expansion/issuance of shares, journal note), I think about SEK 25 billion would be needed to keep the interest coverage ratio above 1.8 (see factbox). But, as I said, an estimate of that number is very uncertain, Johansson tells E24.

Read on E24+

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– right

– Why do you think the company is under less pressure than it appears?

– People see the company under high pressure because they think liquidity is a problem for both the operating company (Heimstaden Bostad, journ.anm.) and the holding company (Heimstaden, journ.anm.), which is simply not true. Johansson says and continues;

– Secondly, people do not pretend to understand how the various instruments actually work in the capital structure, and that Heimstaden Bostad preferred shares are not listed.

It is believed that people also do not understand that owners who have more than ten percent can demand cash payment.


– Furthermore, I believe that many stakeholders (stakeholders) overestimate changes in yield (rental yield, journal. Note) in Heimstaden Bostad, as this type of property is often priced more per square meter than yield for several reasons, Johansson says.

It is believed that the main point is liquidity.

– This could put real pressure on the company in the short term, and in this case, we believe that both the operating company and the holding company are relatively well taken care of, says the analyst.

– What do you think are the capital needs of Heimstaden Bostad in the short and long term?

– I think we will see 10-15 billion SEK in capital grants, but it all depends on how much is sold and at what levels, says Johansson.

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Good access

At the end of the second quarter, Heimstaden Bostad had a cash balance of SEK 8.2 billion, in addition to SEK 17.7 billion in credit facilities.

The Arctic analyst points out that this covers all of the company’s payments due through October 2024.

– If you add the fact that the company owns properties in good (“prime”) locations in major cities (57% of income comes from regulated markets), the prospect of additional bank financing should be considered relatively good, Johansson writes in his analysis.

He adds that the company is insured Loan-to-Value Ratio (LTV). Loan-to-Value Ratio (LTV). Loan-to-Value Ratio: The debt in relation to the reported value of the property’s inventory. In the second quarter it was 31.4 per cent, which gives room of SEK 29.2 billion up to S&P’s 40 per cent CVA coverage requirement, according to him.

– If you add this potential source of financing, all bond maturities until March 2027 will be covered, the analyst writes.

The graph shows the extent to which Heimstaden Bostad’s liquidity sources alone cover the repayment maturities of existing bond loans, regardless of dividend payments, financing from operations, etc. Today’s liquidity will cover the company’s €1.25 billion maturity in October 2024, and if the company’s secured debt of up to 40 percent (LTV) is included, the bond’s maturity until March 2027 will be covered, according to Arctic.

Estimates 30 billion

Swedbank believes Heimstaden Bostad needs SEK 30 billion in grant capital to deal with upcoming payment due dates and interest costs, according to Finansavisen.

The need increases to SEK 44 billion if capital is injected through the sale of real estate, according to the brokerage firm.

Sales to individuals

Communications Director Christian Dreyer at Heimstaden points out to E24 that the board of directors of Heimstaden Bostad has every ambition to maintain the BBB rating, with a long-term interest coverage ratio (ECRECRinterest coverage ratio) is not less than 1.8.

This may include real estate sales and new capital, without further specifications yet. Selling homes to private individuals, Dreyer says, is particularly beneficial, as it provides significant support for ICR development.

Communications Director Christian Dreyer, Heimstaden.

Heimstaden Bostad does not anticipate needing capital to stay within the variable debt ratio threshold of 60 percent, according to him.

– However, we have announced in relation to the second quarter accounts that our ambition is to be much lower than this and also in the long term below the previous limit of 55 per cent, says the Director of Communications.

Heimstaden owned by Ivar Tollefsen owns 38% of the shares in Heimstaden Bostad, but owns 50% of the vote. Other owners include Swedish funds Alecta and Folksam, with 38 and 18 percent, and 30 and 15 percent of the vote, respectively.

Ericsson and the Swedish Pensions Agency are also on the owner’s side, along with many others.

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Dalila Awolowo

Dalila Awolowo

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